Natural Gas Overtaking Coal as Top Source for Electricity Generation Has Broad Implications

For the first time ever, natural gas has overtaken coal as the U.S.’ top source for electricity generation, a trend that has large implications for the country’s electricity sector. As of April 2015, natural gas provided 31 percent of all electric power while coal fell to 30 percent—painting a very different picture from how things looked just five years ago when natural gas provided only 22 percent and coal produced 44 percent.

For the first time ever, natural gas has overtaken coal as the U.S.’ top source for electricity generation, a trend that has large implications for the country’s electricity sector.

While the domestic oil and gas boom and falling natural gas prices are certainly major drivers of this energy shift, there may also be some other factors at work.

“Our industry faces a challenge: we need to meet greater energy demand with less CO2,” reads the letter signed by the chief executives of BP, Royal Dutch Shell, BG, Total, Statoil and Eni. “… Carbon pricing will discourage high carbon options and reduce uncertainty that will help stimulate investments in the right low carbon technologies and the right resources at the right pace.”

With the already-weakened state of the coal industry, will this move by oil companies be a final nail in the coffin for coal?

“One possibility is that [oil companies are] looking at this with a longer-term perspective, aware that nothing might ever take place, and that if something does, the two principal choices have long been considered to be cap-and-trade and a carbon tax,” Michael Quinn, a natural gas industry expert at the Analysis Group, told The Fuse, noting that his perspective represents his opinion and not that of his organization.

Quinn added: “While [oil companies] may prefer the status quo, they may also be expressing a preference for the case if there will be a change, they’d rather have a carbon tax than any other form, particularly cap and trade. There are lots of reasons to prefer a carbon tax as the regime to introduce, among which are breadth and reduced uncertainty.”

A call for carbon pricing may not be an intentional move on the part of some in the oil industry to further weaken coal’s place in the market. In fact, any efforts to destroy the coal industry may no longer be necessary, given that coal is in terminal decline on many levels.

While there are myriad reasons for this decline, natural gas has already been touted for some time as a bridge fuel before wind, solar and other renewables become increasingly more cost effective.

While there are myriad reasons for this decline, natural gas has already been touted for some time as a bridge fuel before wind, solar and other renewables become increasingly more cost effective. In the meantime, Quinn sees even a broader point to consider: how natural gas is more complementary than coal to an increasingly renewable-focused grid.

“Natural gas appears likely to continue to overtake coal for electricity generation, regardless of whether some form of carbon pricing is enacted, and regardless of who supports such policies,” Quinn explained. “Another aspect to consider is that gas-fired electricity generation may better complement wind and solar than would coal-fired generation, as the former ramps up and down far more quickly.”

The chart below from the U.S. Energy Information Administration’s Electric Power Monthly further illustrates the trend. Wind, natural gas and solar are on the rise as coal is scheduled for large-scale grid retirements this year.

The EIA attributes the significant number of coal generator retirements—largely in the Appalachian region—to the EPA’s Mercury and Air Toxics Standards (MATS), adopted in 2012, which cracked down on emissions from these plants. Many operators found that retrofitting their plants to fit the new MATS regulations was more expensive than retiring them altogether—especially as a result of lower demand for coal and natural gas becoming increasingly competitive. However, with the U.S. Supreme Court’s decision last month to upend the MATS regulations, some plants that applied for an extension through April 2016 on meeting the new restrictions will be allowed to keep operations going a bit longer. But even with the declawing of the EPA’s MATS regulations, it’s clear that the coal industry is running on borrowed time.

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The Fuse is an energy news and analysis site supported by Securing America’s Future Energy. The views expressed here are those of individual contributors and do not necessarily represent the views of the organization.

Issues in Focus

Safety Standards for Crude-By-Rail Shipments

A series of accidents in North America in recent years have raised concerns regarding rail shipments of crude oil. Fatal accidents in Lynchburg, Virginia, Lac-Megantic, Quebec, Fayette County, West Virginia, and (most recently) Culbertson, Montana have prompted public outcry and regulatory scrutiny.

2014 saw an all-time record of 144 oil train incidents in the U.S.—up from just one in 2009—causing a total of more than $7 million in damage.

The spate of crude-by-rail accidents has emerged from the confluence of three factors. First is the massive increase in oil movements by rail, which has increased more than three-fold since 2010. Second is the inadequate safety features of DOT-111 cars, particularly those constructed prior to 2011, which account for roughly 70 percent of tank cars on U.S. railroads. Third is the high volatility of oil produced from the Bakken and other shale formations, which makes this crude more prone towards combustion.

Of these three, rail car safety standards is the factor over which regulators can exert the most control. After months of regulatory review, on May 1, 2015, the White House and the Department of Transportation unveiled the new safety standards. The announcement also coincided with new tank car standards in Canada—a critical move, since many crude by rail shipments cross the U.S.-Canadian border. In the words DOT, the new rule:

Since the rule was announced, Republicans in Congress sought to roll back the provision calling for an advanced breaking system, following concerns from the rail industry that such an upgrade would be unnecessary and could cost billions of dollars. The advanced braking systems are required to be in place by 2021.

Democrats in Congress have argued that the new rules are insufficient to mitigate the danger. Senator Maria Cantwell (D-WA) and Senator Tammy Baldwin (D-WI) both issued statements arguing that the rules were insufficient and the timelines for safety improvements were too long.

The current industry standard car, the CPC-1232, came into usage in October 2011. These cars have half inch thick shells (marginally thicker than the DOT-111 7/16 inch shells) and advanced valves that are more resilient in the event of an accident. However, these newer cars were involved in the derailments and explosions in Virginia and West Virginia within the past year, raising questions about the validity of replacing only the DOT-111s manufactured before 2011.

Before the rule was finalized, early reports indicated that the rule submitted to the White House by the Department of Transportation has proposed a two-stage phase-out of the current fleet of railcars, focusing first on the pre-2011 cars, then the current standard CPC-1232 cars. In the final rule, DOT mandated a more aggressive timeline for retrofitting the CPC-1232 cars, imposing a deadline of April 1, 2020 for non-jacketed cars.

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DataSpotlight

The recent oil production boom in the United States, while astounding, has created a misleading narrative that the United States is no longer dependent on oil imports. Reports of surging domestic production, calls for relaxation of the crude oil export ban, labels of “Saudi America,” and the recent collapse in oil prices have created a perception that the United States has more oil than it knows what to do with.

This view is misguided. While some forecasts project that the United States could become a self-sufficient oil producer within the next decade, this remains a distant prospect. According to the April 2015 Short Term Energy Outlook, total U.S. crude oil production averaged an estimated 9.3 million barrels per day in March, while total oil demand in the country is over 19 million barrels per day.

This graphic helps illustrate the regional variations in crude oil supply and demand. North America, Europe, and Asia all run significant production deficits, with the Middle East, Africa, Latin America, and Former Soviet Union are global engines of crude oil supply.